Up 326%, Should You Buy Micron Technology Right Now?
Key Points
Micron Technology's primary catalyst -- the memory chip shortage -- is likely to persist for the next couple of years.
The stock continues to trade at an attractive valuation, even after its stellar stock price rise.
Micron can outperform Wall Street's growth expectations, potentially setting the stock up for more upside.
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The share price of Micron Technology (NASDAQ: MU) has been on a stellar run in the past year, rising an incredible 326% and outpacing the 16% gain in the tech-focused Nasdaq Composite index over the same period.
Investors may now be wondering whether it makes sense to buy this high-flying semiconductor stock. That's precisely what this article aims to find out by taking a closer look at Micron's prospects and valuation.
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Image source: Micron Technology.
Micron Technology's biggest catalyst isn't going anywhere
Micron has been a big beneficiary of the artificial intelligence (AI) data center construction. The company's dynamic random-access memory (DRAM) chips and NAND flash memory are used in a wide range of AI accelerators, from graphics cards to custom processors to central processing units (CPUs).
This has created a huge shortage of both computing and storage-memory chips. Designers of AI accelerator chips have been locking in the supply of AI-specific DRAM chips, known as high-bandwidth memory (HBM), well in advance to ensure that they have enough capacity to meet the robust demand from companies investing hundreds of billions of dollars in data centers.
Moreover, the vast amounts of data that need to be stored in AI data centers have led to a shortage of NAND flash supply. The good news for Micron investors is that the memory chip shortage is expected to extend into 2028. The company is looking to bring more production capacity online, but that's going to take years.
As a result, the favorable pricing in memory chips is likely to continue. Market researcher TrendForce anticipates a 112% increase in NAND flash revenue this year to $147 billion. The DRAM market's revenue is forecast to grow at a stronger pace: 144% to $404 billion. And TrendForce expects the overall memory market to grow by another 53% in 2027 to $843 billion.
As such, the chipmaker's remarkable top- and bottom-line growth is likely to continue over the next couple of years.
Micron stock is a no-brainer buy
Micron stock continues to trade at an attractive valuation despite its phenomenal surge in the past year. It has a trailing earnings multiple of 24, lower than the U.S. tech sector's average of 42. And the forward price-to-earnings ratio (P/E) of 12 foreshadows a big spike in earnings -- not surprising, since analysts estimate a 309% increase in earnings this fiscal year.
They anticipate a much slower 31% increase in Micron's bottom line in fiscal 2027, but the company could easily do better than that thanks to the catalysts discussed above. Also, the stock's price/earnings-to-growth ratio (PEG ratio) of 0.18, according to Yahoo! Finance, indicates it is undervalued given its long-term potential.
The PEG ratio is calculated by dividing a company's trailing earnings multiple by its annual earnings growth rate over the next five years. A reading below 1 indicates that a stock is undervalued when its growth potential is considered. Micron seems hugely undervalued on that front, making it a top AI stock even after its impressive gains.
Should you buy stock in Micron Technology right now?
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
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